Launching the iPhone May Have Been the Easy Part

Despite 270,000 Devices Sold, the Hype Has Led to Analyst Disappointment

SAN FRANCISCO (AdAge.com) -- From a marketing point of view, the iPhone may have been one of the most well-orchestrated launches in history, selling a record 270,000 devices its first two days.
Unit-sales expectations for the iPhone were so high that even breaking the quarter-million mark was seen as a disappointment for analysts who had predicted a stratospheric 500,000 to 700,000 units sold.
Now comes the hard part.

Competition coming
"For the first couple of weeks, there was pent-up demand, but now they will be slugging it out in the marketplace for wireless phones," said Jeff Kagan, an independent telecom analyst. With iTunes and the iPod, Apple founder Steve Jobs created a new category. But the iPhone soon will be facing "competition from a lot of phones that look like the iPhone, and sound like the iPhone."

The battle will heat up this holiday season, he said. Already, other carriers are readying new competition. "Not everyone wants to leave their carrier," said Mr. Kagan, and AT&T is the sole carrier for iPhone. Overall, the handset marketplace has created a "brand category and we don't know the best way to market to this customer yet."

The iPhone relied on a large dose of TV advertising along with a tightly controlled show of hype from fans deliberately given scant advance information about the device. That ratcheted up unit-sales expectations so high that even breaking the quarter-million mark was seen as a disappointment for analysts who had predicted a stratospheric 500,000 to 700,000 units sold. As a result, AT&T, which said it activated 146,000 iPhones in the first two days, disappointed Wall Street. Apple is sticking by its prediction of selling 10 million iPhones worldwide by 2008.

High expectations
"I think it may be an understatement to say that no device in the history of the wireless industry has come out with more fanfare than was the case with the iPhone," said Richard G. Lindner, senior VP-chief financial officer, AT&T, in a conference call with analysts. "Expectations were certainly high. But I'm pleased to say that the iPhone has met them," he said. "Initial customer feedback has been off the charts."

That's not exactly what some others have found. A CIBC World Markets study of retail stores showed iPhone demand has dropped.

Still, a number of analysts believe that phone has lived up to its expectations and will ride out the storm. "Everybody was drinking the Kool-Aid," said Roger Entner, senior VP-communications sector, IAG Research. "Now, a little of the hangover is kicking in."

A convert
Mr. Entner himself has become an iPhone convert. At the height of the iPhone frenzy, Mr. Entner said he doubted the phone would realize high sales due to its cost, $500 to $600. He compared it to a Ferrari that many would admire but few would buy. Now, however, he said he has tested an iPhone and is highly impressed.

"The device's capabilities are not overhyped; it lives up the expectation," he said, adding he thinks many consumers, might just opt for the Ferrari.